The Pattison Crash
last updated July 21st 2014

THE TRIAL - DAY 7

"What Happend When?                        The indictment
time frame        time frame
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The defence (proof for defender Robert Pattison) used an accountant, Mr Robert Cockburn Miller, who had gone through the books to try to convince the jury that the reasons for the omissions were the bookkeeping systems of Pattison. It was a big company and mistakes in different departments and by clerks were done and it was a delay in reporting.
Mr Miller was of the opinion that the company (Carter, Greig & Co) who had made the certificate included in the prospectus should have seen the faults. "The position of an investigator was much more responsible than that of an ordinary auditor".

He pointed out faults in the report which was in favour of the brothers and said that the brothers "had the chief interest in the stability and prosperity of the company, and if there was a fraud they themselves would suffer most"
He was also of the opinion that it was unimportant for the preference shareholders how much the profit was as long as it was more than the dividend they got and explained that the reasons for faults in the books were the time factor, i.e. it took long time unti linvoices were entered in the journals and also the difficulties for the clerks to handle joint accounts with cross-entries correct.
He also gave evidence of a fault the auditors hade made when handling a loss of the London agency, which the auditors had put in as a loss of £8,000 for December 1895. He meant that “seven-twelfths of that sum should have been debited to the period before the two years and eight months".
He could not understand the action of the accused if they wished to produce fictitious inflation to have kept out the £8000, which would in this instance, be an easy way of producing inflation.
He also explained how the system with joint accounts worked and why it could be two bills for the same whisky. When a joint account was opened a bill for 6 months is issued for the whisky held in the Pattison warehouse. If that whisky was sold after a week only there would be two bills - the original one which still had 5 months and 3 weeks to run and the new bill.
He said that the money for the promissory notes (£40,000 - Clydesdale Bank) went to Pattison Limited and "The Pattison never got a penny of it." The bank asked that the overdrafts should be wiped out and the discount to be brought into the limits - and so was done.
He also stated that if the stock of whisky is over-valued the result would be that the next income tax would be so much higher - the profits are increased for the past and diminish as much for the future. He could see no reason why it was in the interest for Pattison to do so. Over-valuation had an effect on the reserv fund but not on the dividend and they could have paid the same dividend also without the over-valuation. He was also the opinion that the stock which would need to go to the market should be valued at market price.
All questions were asked by Mr Guthrie (defender for Robert Pattison) and Mr Ure (defender for Walther Pattison had no additional questions).
The witness was then cross-examined by the Solicitor-General who made a good job and several times put questions which made the audience to laugh. The Solicitor-General reminded him "What is being tried here is not the case of the failure of Pattisons Ltd, but the case against the accused" and he was asked:
     Upon the floatation. Did the two Pattisons sell their business for £400,000?
     - Nominally they did.
     What do you mean by “nominally”?
     - They sold it for £400,000 in shares, that might as well be called £800,000 or £8,000,000. It would have made no difference.
     I ask you, Mr Millar, did they not sell the business for £400,000?
     - Technically speaking it is accurate.
     I don´t know what you mean by “technically”
     - It was well known it was to be paid in shares – not in sovereigns.
     With that qualification I accept your statement.

The witness could not say if he would had bought shares at £10 but maintained the opinion that the profit was important for the ordinary shares but not for the preference shares as long as they got the money. He was pressed on this statement by the Solicitor-General and was asked:
     Did you ever meet any other accountant besides yourself who had that view ?
     - Yes, my brother. (Laughter.)
     Then it a peculiarity of your firm—a sort of family concern. (Laughter.)

The Solicitor-General tried to get the witness to state that Mr Greig (accountant) had made any mistakes or something wrong when he made his investigation for the prospectus, but he did not got a clear statement from the witness just that he would have done it different.
He was further pressed and had to say that the he did not know that the loss of the London agency appeared in the London books and that the credit note for Cockburn & Co was sent in in January.

Proceeding to the Clydesdale Bank transactions, the Solicitor- General said he understood witness to say that the company gained by the transaction many thousand pounds. Witness:
    - The creditors of the limited company were benefited.
     I understand that when the bills were overdrawn you said that the company benefited by many thousand pounds?
     - That substantially right.
    Do you say that at January 1897, the limited company gained many thousand pounds?
     - No.
     Did they gain anything?
     - By the liquidation they have gained. (Laughter.)
     Is that because they only paid their creditors 8s in the £?
     - lt is perfectly simple.
     l have never heard it stated so frankly before. (Laughter.) Suppose I owed you £10,000 and went to the bank, and, with your name the bill, got £40,000 and I paid the money to you, would you be any better?
    - Yes; because I have got the money.
     But you are liable to the bank?
     - Yes; but I have got the money, and, if a person who owed me the money had become bankrupt, I would never have got it. (Laughter.)

Next witness was Mr James Craig also accountant. He was rather harsch in his criticism of Mr Greig and said that "If the accountant did not take the trouble and did not take the responsibility of finding out the true profit for himself, then I don't know what he would get his fee for". He said that the bookkeeping Pattisons was old fashioned and that in a big company like Pattisons the managing director is as regards matters of book-keeping at the mercy of his clerks. It was strange that such a big company did not have an auditor. He also pointed out that the brothers gave an obligation and they became a security for the company, the ultimate result being a liability of £500.000. Why would they seek to defraud the company. He explained the system with joint accounts and found them as bad means for financing with the purpose of accommodation. He was cross-examined by the Solicitor-General and the main question was the brothers had not noticed that out of the £36,000 profit (in the last 8 months 1895) £22,000 was due to omissions in the books. The result was that the brothers had to pay the difference out of their own pocket and the Solicitor-General asked:
- Would you have expected that a man who had to pay £22,000 for carelessness to make some grumbling about it?
-- If he had anybody to grumble to
- ... would he make no complaints to his clerks?
-- It depends on the nature of the man?
- He might have been a madman, might he not?
-- The you have come very near the point. He might have been an exception. I think there is a great deal of eccentricity in this case.


and another accountant Mr Alexander More said that it would have been sufficient to check one months transactions to see if the books were accurate.


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Sources:

Aberdeen Journal - Tuesday 16 July 1901
Advocates Library/National Library of Scotland